We've recently discovered a new method to significantly increase the level of confidence in cost estimates and allow us to be much more proactive in managing our P&L. The strategy is to link our signoff on a project and the financial stake held by that project's cost center. Here is the process: 1) We signoff on a project or cost center (100%) 2) That cost center then becomes responsible (via "Rep" or in some cases "Sub-Consultant" in the project's budget) for 100% of the cost of the project (initially this is a manual process but soon we will have this automatic). If at any time the cost center's financial stake drops to below 50% of the cost of the project, the project's budget must be reprioritized to bring the stake in that cost center back up to at least 50%. Why is this important? Well, if we are underestimating the cost of a project by 10% and we hold financial stake in the project at 50%, the project only costs us 50% of our total estimate or only half of our available budget. If we underestimate the project by 10% again, the cost only costs us 50% of our available budget and only half of our available budget is lost. However, if we don't have confidence that we can get the cost back up to 50%, we could lose a project for 50%+ of our available budget. This method requires a lot of discipline and a lot of communication across all levels of our organization. Fortunately, it is simple and it provides us the flexibility to react to changes in our estimate. I would like us to be more proactive at getting our P&L under control and increasing our level of confidence in our overall estimates. To do this I am asking each of you to look for ways to add this type of discipline to your teams. I realize that there will be those of you that feel your groups are already too "aggressive" in their approach to managing their P&L. I would ask you to review the attached presentation and to look for other opportunities to add this type of discipline. The next time we have a "numbers" discussion with the Directors I would like to see this information included. We will be discussing "Fall 2001" and the expectations of each group. Thank you for your time and attention to this subject. I look forward to working with each of you to develop "more disciplined " cost estimates for ENA. ---------------------- Forwarded by Wanda Curry/HOU/ECT on 01/11/2001 09:47 AM --------------------------- Debbie Flores-Cuellar@ENRON 01/08/2001 03:18 PM To: Wanda Curry/HOU/ECT@ECT cc: Subject: Estimates vs. Actual for 1st Quarter 2000 Wanda- Per your request, attached please find the file containing the actual allocations per AOC as well as the estimates. If you have any questions please feel free to contact me at x3-5614 or Lisa Shoemake at x3-9843. Thanks, Debbie D. Debbie Flores-Cuellar Enron North America (713)853-5448 Presently: Enron Global Exploration & Production Presently: Enron North America - Origination & Trading (713)853-5448 Debbie Flores-Cuellar 08/31/2001 09:30 AM To: Michael Neves/HOU/ECT@ECT, Mike McConnell/HOU/ECT@ECT, Cathy L Fowler/HOU/ECT@ECT, Wanda Curry/HOU/ECT@ECT, Scott Neal/HOU/ECT@ECT, Johannes Schalkwyk/Corp/Enron@ENRON, Robert Geheb/TRANSREDES@TRANSREDES, Dave Valentin/Corp/Enron@ENRON, Eric Boyt/Corp/Enron@Enron cc: Subject: Estimates vs. Actual for 1st Quarter 2000 In working with the Accounting Department on the allocation for January 2000 and the payment of the A/R for January, we discovered some minor differences that we need your assistance in resolving. Attached please find the allocation. Also attached are the estimated payments and actual payments for January. Based on these figures, there is a slight difference of ($161,179) between the Estimated Payments and Actual Payments. The vast majority of this difference results from a program that was paid in January, 2001. However, there is also a portion that we may not have included in our number. The Accounting Dept. has indicated that they will work with us to determine if this is the case or if we have omitted any additional allocation. Once we have agreed on these figures, we will forward them to Corporate for their final review and subsequent payment. Thanks again for all of your help, Debbie Flores-Cuellar Enron North America Corp. (713)853-5448